Virginia Supreme Court Affirms Vacating $2 Billion Jury Verdict and Clarifies Burden of Proof for Damages in Trade Secret Cases

At a Glance

• The Virginia Supreme Court held that, under the Virginia Uniform Trade Secrets Act, the plaintiff retains the burden of proof to establish causation and damages for trade secret misappropriation.
• The supreme court rejected burden-shifting instructions that would require the defendant to prove which revenues were unrelated to the misappropriation or to establish deductible expenses.
• The decision affirms the court of appeals decision, previously described here.

Summary of the Decision

Appian Corporation (Appian) and Pegasystems Inc. (Pega) are competitors in the business process management (BPM) software market. In 2012, Pega hired a consultant with inside access to Appian’s proprietary software and documentation. Over several years, Pega leveraged confidential Appian information to inform product development and sales strategies, resulting in product improvements and competitive advantages.

At trial, Appian’s damages expert calculated unjust enrichment by using Pega’s revenues without apportioning for those sales unrelated to the alleged misappropriation. The circuit court instructed the jury that it was Pega’s burden to prove which revenues were unrelated or offset by expenses. Pega’s ability to meet that burden was made more challenging due to a prior discovery ruling.

Ultimately, the jury awarded Appian $2,036,860,045 against Pega and $5,000 against the consultant for violation of the Virginia Uniform Trade Secrets Act (VUTSA).

On appeal, among other things, the parties disputed the jury instruction that, if Appian established sales of products tainted by misappropriation, the burden shifted to Pega to prove which sales were unrelated to the misappropriation and to establish deductible expenses.

The court of appeals found the instruction was erroneous, and the Virginia Supreme Court agreed. In reaching its conclusion, the supreme court traced through Virginia history the common-law requirement that the plaintiff bears the burden of proof for damages. Given that history, the supreme court looked for some explicit pronouncement by the Virginia General Assembly in passing the VUTSA that the burden could be shifted to the defendant, but found none. Thus, the supreme court concluded that the General Assembly did not intend to have the VUTSA use burden-shifting for damages. Relying on this conclusion, the supreme court distinguished the case law from other jurisdictions that used burden-shifting with their trade secret acts. The Virginia Supreme Court also noted that the VUTSA did not wholly adopt the Uniform Trade Secret Act’s damages provision — instead adopting language that explicitly placed the burden on the plaintiff — which further suggests the General Assembly did not want to deviate from its common law. Accordingly, the supreme court affirmed the court of appeals and remanded the case, which will be retried.

Key Takeaways for Future Cases

Trade secret plaintiffs in Virginia must prove causation for their damages claims — including which sales were related to the misappropriation — and may not shift the burden to the defendant.